Reuters recently interviewed Graeme Train, Head of Metals Analysis at Swiss-based commodity trader Trafigura, who said worldwide demand for copper is expected to grow almost 40% over the next decade. Drivers of the increase include EV production, energy transition, and infrastructure build in countries like India where per capita use of copper is only one twentieth that in China. Mentioned but underplayed was the idea that the growth of AI may also drive demand.
For supply chain strategists, maybe it’s time to think about a closed-loop approach to sourcing copper based on Urban Mining (aka, recycling).
Could Copper Become a Crisis?
Copper prices are rising, and yet, they are still lower on an inflation-adjusted basis than peaks seen in 2011 and 1966, so why worry? One reason is that supply chain-specific trends suggest these prices understate risks for this increasingly critical material over the next decade.
Three factors to watch include:
India – The scale-up of manufacturing in India is drawing big investments from companies like Cisco, Adidas, Gap, and Siemens. India’s government sees the opportunity and realizes that it must overhaul the country’s logistics infrastructure (ranked 38th globally) while also reducing the carbon intensity of its electricity, which is nearly twice as dirty as the US or rival manufacturing magnet, Vietnam. Copper demand in India could spike sooner and faster than commodity traders expect if risk-averse global brands push India’s leaders to combine infrastructure investment with government fast-tracking like China did in the 1990s.
AI – The explosion of interest in AI is driving huge demand for data center capacity and power. Zero100’s research on AI for supply chain operations shows that many Fortune 1000 manufacturers and retailers are getting ready to shift from pilot to scale across hundreds of AI use cases. As this happens, we expect a flywheel of growing practitioner adoption, training model sophistication, and data refining to take AI from edgy new tech to commonplace supply chain enabler. The increase in an AI-driven demand for copper won’t be gently linear once AI kicks in as a competitive differentiator.
Global Geopolitical Risk – The 2023 World Copper Factbook cites constraints it considers important risks to long-term supply. Among the more concerning are political risk, project finance, and “resource nationalism.” Chile and Peru account for 37% of total world copper mining, with China and the Democratic Republic of the Congo each accounting for 8%, and while proven reserves appear abundant, dependencies downstream lean heavily on China in smelting (49%) and refined copper production (43%). Rare earths may get all the attention, but copper supply could be a much bigger problem if political tensions get nasty and the costs of capital spike.
Industry Global Flows of Copper (2020) and Derived Recycling Rates
Build the Urban Mining Muscle Now, Before It’s an Emergency
In 2022, Zero100 published a report on Urban Mining. Its premise was about sustainability and using sourcing leverage to help develop a stronger ecosystem of post-consumer material collection and processing. Copper is a perfect target for Urban Mining because it is an established post-consumer material with 90% energy savings and 40% carbon reduction compared to virgin material.
Also important to its viability as a candidate for Urban Mining is the relatively simple, small-scale processing operations needed for copper recycling. Alibaba, for instance, sells low-cost wire stripping machines ($8,500) and cable granulators ($19,800) which gives some idea of how practical it is for small business owners to enter the market. Copper has a relatively low melting point and loses virtually none of its conductive properties in the process.
80% of all copper ever mined is still present in occupied buildings and working machines. Meanwhile, scrap metal collectors recover 6 million tons annually, losing about a third in processing and feeding the rest back to smelters and refiners. Unfortunately, 7 million tons of end-of-life copper scrap are still unaccounted for.
The technology, business model, and economics are there, but the ecosystem is underdeveloped. Strategic sourcing leaders could start to correct this now by favoring recycled copper wherever possible, focusing on supplier development and technology transfer to foster Urban Mining as an alternate source of local supply.
Why wait for a crisis if you can cut Scope 3 carbon today and avoid trouble later?
